Treasurys mostly flat after cautions Yellen comments

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Treasurys turned flat on Friday with investors caught between the cautious message over labor markets from Fed Chair Janet Yellen and geopolitical risks from Ukraine crisis that is hampering euro zone economic growth.

Yellen, in the keynote speech at the annual central banker jamboree in Jackson Hole, Wyoming said the U.S. labor markets remain hampered in their recovery from the Great Recession and therefore need to move with caution on when to raise interest rates even as the economic data shows improvements.

Her dovish stance contrasts with some voices within the U.S. Federal Reserve's monetary policy committee who say the Fed risks waiting too long to increase interest rates to stem inflation or the creation of asset bubbles.

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"I think we are splitting hairs. We cannot say she's changed sides and I don't think the market was really expecting that. I think the market was setting itself up for a more clearly dovish speech and we didn't get that," said Wilmer Stith, co-manager of the Wilmington Broad Market Bond fund, in Baltimore, Maryland.

"I think everyone knows Yellen is a dove, and that she would rather err on the side of caution. I agree with her. Investors are really in a sweet spot, the economy is improving and central banks are not going to let the global economy fall into another recession. Yellen is going to lead the way on that," said Wayne Kaufman, chief market analyst at Phoenix Financial Services in New York.

The yield on benchmark 10-year Treasury notes—used to calculate mortgage rates and other consumer loans—was flat at 2.41 percent, while the 30-year bond yield fell to 3.16 percent.

In addition to the Jackson Hole symposium, traders were also focusing on geopolitical tensions after Reuters reported that around seventy Russian aid trucks had entered Ukraine without permission from Kiev.

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Prices rose on Thursday despite better-than-expected U.S. economic data, as investors looked ahead to Yellen's speech.

"Thursday's rally occurred despite economic data surprising positively, and was likely driven by dovish expectations ahead of the Jackson Hole symposium," Barclays analysts said in a morning note.

After minutes from the latest Fed policy meeting, published Wednesday, were more hawkish than some expected, market-watchers are keen to discover whether Yellen will alter her usual dovish tone.

"Bear in mind that Yellen is a labor market dove and believes strongly that the 'true' level of unemployment is higher than the current rate of 6.2 percent suggests," economists from Investec Capital Markets said in a morning note.

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"Hence she is likely to stress that labor market conditions remain slack and that an accommodative policy stance remains appropriate. This would be in contrast with some of the more hawkish sentiment expressed via July's FOMC (Federal Open Market Committee) minutes released earlier in the week."

European Central Bank President Mario Draghi will also speak at Jackson Hole later on Friday, as the conference dominates a day with no major data or corporate earnings due for release.

—By Reuters with CNBC